BANK of England governor Sir Mervyn King last night paved the way for the coalition to pile even greater amounts of cash onto the national debt pile, saying that slower economic growth will excuse a higher than expected deficit.
Global economic strife, such as the ongoing Eurozone debt crisis, means that the coalition may reduce the annual deficit at a slower rate than planned, King told Channel 4 News.
“If the economy were to grow slowly then taxes would not rise as quickly and spending would be higher, so the deficit would be bigger,” King said, arguing that the coalition had allowed for this flexibility all along.
“The plan said don’t attempt to bring that deficit down if it is the result of slow growth in the economy and that is exactly what is happening.”
Removing one-off transactions from the figures, public sector net borrowing from April to July was £47.2bn, up £11.6bn on April-July 2011.
The government hopes to eliminate the deficit by the end of this parliament, but it would be “acceptable” to miss the target if caused by economic events, King said.